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Distress: High Court turns up the heat

The member, a healthcare worker, was wrongly told over the six years before she retired at age 55 that she was entitled to an unreduced pension from that age. Once the mistake was discovered, her employer offered her some £5,000 for the distress caused, which she did not accept. However, on complaining to the Pensions Ombudsman’s office, she was instead awarded a mere £500 for the employer's maladministration.

She appealed the decision and (in Smith v Sheffield Teaching Hospitals NHS Foundation Trust [2017] EWHC 2545 (Ch)) the High Court directed that £2,750 should be awarded for distress instead of the £500. To reverse the original award, Norris J had to identify an error of law in the Deputy Pensions Ombudsman having arrived at the original decision. He was satisfied that he could, because:

although the Deputy Ombudsman had found only one instance of maladministration, there had been a chain of incorrect estimates, each of which amounted to an instance of maladministration;

the member’s distress at learning that information provided over six years had been inaccurate was of a different order to a single error;

the member’s uncertainty was prolonged by a four month period during which the amount of her pension was debated between those responsible for it; and

the employer had demonstrated its understanding of the level of distress by the size of its initial offer.

Like the judge in Baugniet v Capita Employment Benefits [2017] EWHC 501 (Ch), Norris J was of the view that the top end of the ‘normal’ band for awards should increase from £1,000 to £1,600. To justify going above the £1,600 benchmark here, the court cited the number of missed opportunities to correct the misinformation, the relative ease with which the true position could be ascertained, and the period over which the maladministration persisted.

There was no reason to make a less generous award purely because the member suffered no financial loss: “there is no logical connection between the amount of the financial loss and the size of the award for distress caused by maladministration.”

As we write, the Pensions Ombudsman has not updated his factsheet on non-financial injustice (which says that distress awards are likely to range from £500 to £1,000 in most cases) but in light of this recent case law this may now be under review.

The judge was unconvinced by the member’s assertion that the Deputy Ombudsman should have used her investigatory powers to aid the member in proving her case. “I would require some persuading that a complaint is an iterative process in which the Pensions Ombudsman was routinely required to undertake a provisional analysis and then invite the complainant to supplement any deficiencies (so that a failure to do so is an error of law).”

Comment: The key takeaway for trustees and employers is that High Court judges are uniting around the position that the longstanding £1,000 ‘ceiling’ on typical awards is too low. It may not be a coincidence that since Smith was handed down, the office has made two distress awards of £2,500, the highest awards made since Anthony Arter and his deputy, Karen Johnston, took office two and a half years ago. It will also be interesting to see if the courts on appeal continue to make their own distress awards rather than remitting the matter to the Ombudsman.

Compare jurisdictions:Arbitration

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